March's big
event in the Democratic People's Republic of Korea
(DPRK) was the budget. As usual, the Supreme People's
Assembly (SPA), the rubber-stamp parliament, met for
just a single day last Thursday, March 25. It heard -
and unanimously approved - reports by the finance
minister, Mun Il-bong, on the budget, and by the prime
minister, Pak Pong-ju, on the wider economy. Each of
these looked both forward and back, summing up last year
and setting tasks for 2004. (The calendar year is also
the financial year in North Korea, which otherwise uses
its own unique calendar, starting from the birth in 1912
of the late great leader Kim Il-sung, who died in 1994;
thus 2004 is Juche 93, 2003 is Juche 92, and so forth.)
Nor is this the only idiosyncrasy. Despite the
rare treat (eagerly anticipated by DPRK-watchers) of an
official number or two, as so often in Pyongyang, the
Star Trek mantra applies. This was a budget speech - but
not as we know it. As reported by the official Korean
Central News Agency (KCNA), Mun Il-bong did not actually
reveal a single solid number. With due prudence, he
reported underspending: expenditure was only 98.2
percent of the planned figure (who lost out is not
revealed), while revenue exceeded the plan at 100.9
percent.
Until last year, such percentages could
be plotted against known past figures to derive the real
numbers. On that basis, North Korea's recent budget
history is startling. After years, indeed decades, of
reported steady annual increases on both sides of the
ledger, by 1994 income and spending alike had reached
41.5 billion won (just under US$20 billion at the rate
of exchange then). Then Kim Il-sung died, and for four
years the SPA did not meet: supposedly as a sign of
mourning, but this was also the worst period of famine.
When in 1999 the SPA finally reconvened, the
then-finance minister, Yun Ki-jong (a rare woman among
Pyongyang's top elite), revealed, but did not try to
explain, figures of barely 20 billion won for 1998 -
meaning both income and spending had plunged by half in
just four years. After this shock, the pattern of slow
annual rises resumed, reaching 22.2 billion won in 2002.
But that year's economic reforms, involving manifold
increases in most prices and wages, created a new
problem from 2003: namely what exchange rate to use, as
between what can in effect be called old and new won. No
doubt Pyongyang bureaucrats have their own multiplier
for this, but they are not letting on what it is.
So we are stuck with percentages and bitty ones
at that. Besides aggregate income and spending, Mun
Il-bong gave a partial breakdown. Last year 15.7 percent
of the budget went for defense, 23.3 percent on the
national economy, and 40.5 percent to "various popular
policies for the promotion of the people's welfare"
(social services in normal parlance). Where the
remaining 20.5 percent went was not revealed, nor any
further breakdown. Of last year's main innovation -
North Korea's first government bonds in half a century,
intended to flush out foreign currency and other savings
kept under the proverbial mattress - Mun just said that
"a large revenue" was added and "not a small amount of
funds" donated.
Taxing free markets He
was hardly more forthcoming on targets for this year.
Total revenue is set to rise by 5.7 percent, with a
planned 16.5 percent increase in state enterprise
profits - while "those of cooperative organizations and
others are envisaged to markedly swell". The "others"
refers to North Korea's new and burgeoning private
sector, whose relationship to the old planned economy -
which the budget report presupposes as the norm - is far
from clear. Defeated in trying to crush free markets,
the state is doubtless keen to tax them.
Otherwise it was targetry as usual. Total
spending is slated to rise by 8.6 percent, suggesting
either a deficit or more bond issues. Defense gets 15.5
percent; in so militarized a society the true figure
must be much higher. Interestingly, defense tasks
include "stepping up ... informationalization" (sic): a
rare admission that North Korea's obsession with
information technology (IT) has a military dimension.
(South Korean defense planners, skeptical of sunshine,
have added cyberwar to the long list of threats they
might confront from across the Demilitarized Zone.)
Overall spending on science and technology is set to
rise by a massive 60 percent, whereas education - surely
not unconnected - and health get just 9.5 percent and
5.9 percent respectively.
Apart from an opaque
mention of an extra 8.1 percent for unspecified
"additional measures" these were the only numbers given
by the finance minister. Otherwise, his old-style
priorities could have been declaimed at any time in the
past half-century: "In order to re-energize the nation's
economy as a whole this year the government will
allocate huge funds for the fields of the national
economy so as to keep the production in the mining,
machine-building, chemical and building materials
industries and forestry going at a steady rate and
effect a new productive upswing in the light industry
and the rural economy while channeling main efforts into
the power, coal and metal industries and the railway
transport." But if everything is a priority, then
nothing is.
Fortunately the prime minister's
speech, at the same SPA session, was a little more
forthcoming. This was Pak Pong-ju's first annual report
since his appointment last September. A year before
that, as chemicals minister, he took part in an economic
study tour of South Korea; where his practical grasp and
eagerness to learn - touring the plants of Samsung et
al, he yearned for several extra pairs of eyes to take
it all in - impressed his hosts. Hence high hopes are
riding on him, as the latest incarnation of a
longstanding adventism - waiting for Godot, so far -
which pines for the day when Pyongyang's technocrats
will finally take over, and economic rationality will
reign.
No technocrats yet at the
helm Not yet, alas. Wishful thinking abounds,
especially in Seoul these days. The Financial Times, in
an upbeat account of Pak's speech to the SPA, quoted
Park Suhk-sam (chief North Korea researcher at the Bank
of Korea, the South's central bank), as concluding that
reform-minded technocrats appear to have firm control
over economic policy in Pyongyang: "Market concepts such
as profitability are becoming entrenched."
Yet a
close reading of Pak's full speech (summary at
www.kcna.co.jp) - hardly supports such optimism. The
premier patently has drive, and a grasp of detail. But
it is quite clear that he is constrained by political,
meaning military, priorities. He added a few figures to
those given by Mun Il-bong. Last year gross industrial
output value rose 10 percent, electricity 21 percent,
lead and zinc 76 percent, iron ore 46 percent, and
cement 27 percent.
That sounds impressive, if
true. But repeated references to the need to "normalize"
production suggest North Korea is still struggling
merely to recover ground lost in the 1990s, when a
series of shocks - the abrupt end of Soviet aid, floods,
and famine - all but wiped out the already-creaking old
industrial base. The northeast, where much of this was
located, remains a rust belt, with few plants emitting
smoke or other signs of life. Many have been
cannibalized for scrap metal, sold across the border in
China. A leading Seoul daily, the Chosun Ilbo, claimed
on March 10 that workers at the crucial Musan mine,
praised by the prime minister for its efforts last year,
are selling iron ore to China to buy food instead of
sending it as per plan to the Kim Chaek steel mill.
While of course Pak Pong-ju mentioned none of
this, one can and must read between the lines. Thus he
demanded "an efficient use of electricity by minimizing
the loss of electricity in transmission, establishing a
strict centralized discipline over the power supply and
widely introducing meters". There is no point producing
21 percent more power, only for it to be dissipated
either in dilapidated transmission lines or wasteful
usage.
Similarly, Pak's calls to "put production
on a normal track", in areas ranging from chemicals to
foodstuffs, imply an economy still in recovery mode. As
such, the few specific targets he mentioned appear
unrealistically high - unless the prior baseline is
alarmingly low. He wants fabric output to rise by 73
percent, and footwear by 53 percent. Even more striking,
he called for production of 2.3 times more iron ore, 2.5
times more pig iron, and five times more rolled steel
than last year. Unless this means restarting or
repairing plants that had closed, such rates of increase
sound absurd and unattainable.
The army gets
the lion's share And what is all this steel for?
"To supply ... national defense industry on a
preferential basis." Similarly, more coal - "tunneling
should be kept ahead of coal mining", which sounds
obvious but suggests problems opening up fresh seams -
is essential to "meet the need for coal in munitions
industry and key domains of the national economy".
This gives the game away. Kim Jong-il's
Songun (military-first) policy, to which Pak duly
genuflected, is both a direct and indirect barrier to
economic recovery, let alone reform. Steel going to
tanks and missiles is lost to more productive uses: for
civilian factories or tractors, say. True, arms sales
can earn foreign exchange; but this is risky business
now, thanks to the United States-backed Proliferation
Security Initiative (PSI), which has already intercepted
several military cargoes heading to and from North
Korea.
Not only is Songun unproductive,
its priorities are reactionary, putting as they do back
at center stage the old Stalinist heavy industry
behemoths: coal, iron, steel. This is not where a
21st-century North Korea should be focussing. Its
comparative advantage lies in manufacturing for export:
as in the planned Kaesong special zone for South Korean
firms, Pyongyang's best business hope, which the premier
did not see fit to mention. At home, the heavy-industry
fetish reduces light industry and agriculture, lip
service aside, to being forever the bridesmaids, never
the bride. (Then again, as US expert Marcus Noland of
the Institute for International Economics has noted, in
a rational world mountainous North Korea - the South too
- would not grow food but import it.)
The
military aspect aside, tensions between old and new
thinking in Pak Pong-ju's speech are palpable. Thus
officials - still in control - are now charged with not
only "economic guidance" but also "business management",
which they must carry out "on the socialist principle
and the principle of ensuring profitability". As if
being capitalist and socialist at once is not hard
enough, they must be militarist too: "actively learning
from the fighting trait and working method created by
the People's Army".
Squaring so many circles
inevitably undermines Pak's call for "a leaping advance
on the front of economy and science", itself intended to
"bring about a decisive turn in improving the standard
of the people's living". Notable too, and sadly typical,
was the silence on production relations as opposed to
productive forces (as Karl Marx would put it).
Ironically, to outside observers North Korea today is a
classic Marxian case. The main obstacles to development
are not technical but social: to wit the dead weight of
a regime and system that still willfully misdirect
resources on a monstrous scale.
No mention of
market reforms Ominously, not once did
Pak Pong-ju explicitly mention the cautious yet
far-reaching market reforms that North Korea has
implemented since July 2002. A reform that dares not
speak its name must by definition be limited. Yet the
day before, the visiting Chinese foreign minister was
proudly shown Pyongyang's new Tongil private market, and
KCNA reported this. With similar ambivalence, The
Economist's correspondent was taken to Tongil - but
forbidden to photograph it. Similarly, that stony
statistical silence speaks volumes about the limits of
reform so far. Foreign investors, not least, will not
come unless given numbers to crunch - nor while the
nuclear crisis remains unsettled, yet another way in
which Songun impedes North Korea's economic
growth.
On a brighter note, Pak Pong-ju
evidently wants to open the economy. Yet his call to
build modern export production bases for the extractive
industries has an oddly old-fashioned ring. True, North
Korea has a range of minerals that it can, indeed does,
process and sell. Moreover commodity prices are high,
unlike in the 1970s when an earlier outward foray landed
Pyongyang with debts that it could not, or would not,
repay to this day. Yet after half a century of
socialism, is this classic Third World raw-materials
syndrome really the best that a self-styled "people's
paradise" can do? And how can it do even this without
vast investment, which can only come from outside? North
Korea has been trying to flog its mines for years, but
has had almost no takers.
At one point, for once
almost speaking the same language as the rest of the
world, Pak says that "the quality of major commodities
in great demand which mainly depend on locally available
rich raw materials should be raised to the world's level
for their high competitive edge on the international
market". Yet to make exports world-class will, again,
require finance and technology that North Korea simply
does not possess.
In the most striking section
of his report, Pak in effect calls on North Korea to
become one big export zone: "All domains and units of
the national economy should wage a mass movement to
build their own strong export bases, expand and develop
foreign trade in a multifaceted manner and encourage
equity and contractual joint ventures on an extensive
scale in the direction of introducing advanced science
and technology. They should conduct substantial
cooperation for economic development with various
international organizations in keeping with the changed
environment and conditions."
Amen to that. Yet
again, this is not wholly new - and it all depends who
does what, why, and how. In fact for many years
enterprises have been told to maximize foreign-exchange
earnings - but to show loyalty to the Dear Leader (who
often pockets the proceeds, as cash or "gifts"), rather
than to boost the economy as such. The premium here is
on one-off deals that turn a quick buck, rather than
building stable long-term relationships. Nor is
Pyongyang picky about partners or products: witness the
Pong Su, a ship caught last year dropping heroin in
Australia for Malaysian gangsters (see Hand in the cookie jar, April 29,
2003). This year the State Department accused North
Korea of drug trafficking at state level. The obverse of
expanding legitimate trade has to be a complete halt to
criminal enterprise.
Or again trade may be an
act of desperation. The Chosun Ilbo story quoted above
also claims that even public security officials -
hitherto privileged, for obvious reasons - were recently
told to start trading, simply to obtain food; and that
corruption among hungry officials is spreading. The
shopworn slogan of juche (self-reliance), when
not simply a lie - North Korea has never been in any
sense a self-contained economy, but has always depended
on outside subventions - is now given a new twist. Ever
since the famine of the mid-1990s, entire regions,
sectors, or households have in effect been told to
expect nothing from the state: you are on your own now,
so fend for yourself.
Yet this same regime,
despite defaulting on its side of the social contract in
failing to guarantee even the most rudimentary of human
needs - food to eat, for sheer physical survival - still
has the gall to claim monopoly rights over its
long-suffering citizens' bodies and minds. The
contradiction is acute; one wonders how long it can last
before people start demanding, as the song has it: "What
have you done for me, lately?"
At the
macroeconomic level, Kim Jong-il cannot put off forever
a choice between, literally, guns or butter: a
military-first policy, or a viable economy. He cannot
have both; and Pak Pong-ju cannot deliver economic
progress while shackled by Songun.
Aidan Foster-Carter is honorary
senior research fellow in sociology and modern Korea,
Leeds University, UK. This article was first written for
and published by www.newnations.com, and is
reproduced by kind permission.
